Delta Air Lines wants to pull in more a la carte fees

Article by: WENDY LEE

Star Tribune

June 4, 2012 - 5:47 AM

First there were fees for checked bags. Then a charge for extra legroom. Now Delta Air Lines is tempting travelers to pay for wireless Internet.

The Atlanta-based carrier has partnered with Amazon.com to let fliers use its website on flights at no cost. But ultimately, Delta hopes passengers will shell out up to $18 for unlimited WiFi access as part of its efforts to increase sales beyond the plane ticket.

It's a strategy more airlines are embracing as they look to raise revenue and offset rising fuel costs. Delta made $814.3 million in such sales in the third quarter last year, about 18 percent more than the same period in 2010, according to the Bureau of Transportation Statistics.

This fee-based phenomenon has been made popular by low-cost carrier Spirit Airlines, which launched at the Minneapolis-St. Paul International Airport this week. But other airlines are joining in, charging for amenities ranging from crackers and cheese to seats up front on the plane.

"Maybe consumers have to realize that this is what it costs to fly your fanny from point A to point B," said George Hobica, president of travel website Airfarewatchdog.com. "If you're not willing to pay it, you can drive or stay home."

Miramar, Fla.-based Spirit charges travelers $45 for a carry-on bag at the gate, $3 for soda and $10 to book a ticket through an agent. Later this year, it plans to hike its carry-on fee to up to $100 -- far beyond the cost of many of its tickets. Spirit, which gets 31 percent of its operating sales from such fees, is the industry leader in ancillary revenue compared to total sales.

But Delta, MSP's largest carrier, is slowly catching up to Spirit, rolling out a la carte services like preferred seating on planes, an assortment of snacks and wireless Internet. In its pact with Amazon, which started in March, Delta benefits from purchases passengers make on the site. Meanwhile, Amazon taps into Delta's vast customer base.

"Shopping at 30,000 feet was a shopping challenge that we wanted to solve and we are thrilled to be exploring this with Delta," said Amazon spokeswoman Grace Chung.

Delta declined to disclose the financial relationship.

The carrier plans to add $1 billion to its ancillary sales by 2014, analysts said. Last year, non-airfare-related revenue made up 11 percent of Delta's overall sales, compared with 9 percent in 2008, according to company data.

"By having consistent revenue, it allows us to do things like make investments back into the product for our customers," Delta spokesman Paul Skrbec said.

Analysts say Delta has pushed the envelope on what consumers are willing to buy in addition to their tickets. The airline is seeking to bundle services and products instead of leaning so heavily on baggage fees, which some passengers view as punitive, the company said.

"What we really have a goal to do is to offer the customer exactly what they want," said Glen Hauenstein, Delta's executive vice president of network planning and revenue management. "So if they want a base fare with a seat and no checked baggage, we have a product for them. If they want free drinks, if they want food, if they want to sit in first class, we have a product for those folks, too."

Delta is also marketing itself to other travel-related companies as a great way to reach a captive audience of 160 million travelers each year. Since last summer, Delta has aired three to four paid commercials before takeoff for businesses such as Lincoln cars, Fairfield Inn and Suites and online car insurance firm Esurance.

Marriott's Fairfield Inn and Suites said Delta is one of the airlines that resonates with its business clientele. The hotel's frequent business travelers average 23 trips a year, mostly on planes, said Kathleen Coney, director of marketing.

"It is where Fairfield's target audience is," Coney said. "They're out there on the road, getting the job done."

Add-on products aren't just limited to Delta. United Airlines also charges for extra legroom, while American Airlines sells movies and TV shows that customers can download onto their laptops.

And while legacy carriers are trying to ramp up ancillary sales, they are still worlds apart from Spirit, analysts say. Spirit's business model is based on charging super-low fares for price-sensitive consumers, whereas legacy carriers are more service-oriented and make money by catering to business travelers.

But Andy LaFrence, chief financial officer at St. Paul-based pharmaceutical firm CNS Therapeutics Inc., said some of the offerings are convenient for fliers. For instance, if he needed a book, he said he might use the free access to Amazon.